Templeton Doubles Down on Argentina as Fund Hurt by Latam

(Bloomberg) -- Franklin Templeton’s flagship bond fund, weighed down by a slump in Latin American currencies just as it started to reap the rewards of a multi-year bet against U.S. Treasuries, is doubling down on Argentina.

Funds controlled by Templeton, run by Michael Hasenstab, bought $2.3 billion of bonds denominated in Argentine pesos Tuesday, according to a person familiar who spoke with the firm about the purchase. The sale was a "reverse inquiry" made by funds run by Michael Hasenstab, the person said, asking not to be named because the talks were private. The Financial Times reported earlier that Templeton bought these bonds.

For Templeton, it’s a bold bet after it took a beating from a slump in currencies from Mexico to Argentina. The $38.2 billion Templeton Global Bond Fund is down more than 1.7 percent in the past month amid a slide in local debt from Brazil, Mexico and Argentina, three of its biggest long-term holdings. The loss helped erode a gain for the year that put the fund at the top of its peer group at the end of April, according to data compiled by Morningstar Inc.

The shift highlights the potential risks and rewards of Hasenstab’s strategy of staking vast sums on conviction trades. Latin American currencies have been among the hardest hit in an emerging-market currency rout this month, set off by the surge in the dollar and mounting concern about rising global borrowing costs.

Argentina’s peso has slumped the most in the world this year, forcing the nation to seek help from the International Monetary Fund, following a mistimed reduction in the inflation target. The government stanched the depreciation on Tuesday, rolling over about $30 billion of short-term notes known as Lebacs and selling almost $3 billion in fixed-rate local bonds. Templeton holds more than 40 percent of one of the existing bonds that Argentina reopened on Tuesday.

Hasenstab defended his long-term holdings in Latin America in an interview with Bloomberg TV earlier this month, saying that Argentina is a “long-term buy” because it has already reversed its policy mistake and will now get back on track. He said Argentina and Brazil are examples of nations that have rejected populism and unsustainable macroeconomic policies, giving them “great potential.”

A spokesman for Franklin Templeton declined to comment further when asked about the fund’s recent performance.

--With assistance from Charles Stein and Pablo Gonzalez

To contact the reporters on this story: Natasha Doff in Moscow at ndoff@bloomberg.net, Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Rita Nazareth at rnazareth@bloomberg.net, Alec D.B. McCabe

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